Boston start-up gives cash for old iPhones

Wednesday

Jan 23, 2013 at 1:15 PMJan 24, 2013 at 9:40 AM

By Peter S. Cohan WALL & MAIN

If you happen to own an iPhone, you are used to the process of replacing your old one with the latest and greatest. But if you're like most people, you don't spend much time trying to get any money for the old version.

Since 2008, a Boston start-up, Gazelle, has been providing a service that buys your old iPhone and other high-end consumer devices, cleans out all its personal data, and then resells it at a profit in an emerging market, such as China, where plenty of people are happy to pay less than the retail price for the latest version to own your old one.

In a January 21 interview with Gazelle chief executive officer Israel Ganot, I learned that Gazelle springs from his long experience with ecommerce leaders. Mr. Ganot co-founded Gazelle in 2006, after he tried to recycle an old Blackberry, and the retailer told him it would be happy to take it off his hands for $20.

Two factors spurred his decision to start Gazelle. First, he believed that “individuals should be rewarded for recycling,” and second, he saw an opportunity – “many electronics still hold value but yet are wasting away in landfills.”

This “sparked the idea to build a business that would redefine the way we think about buying, owning, selling, and recycling electronics.” In 2008, Mr. Ganot became president and CEO of the company.

Since then, Gazelle has become a leader in a product category dubbed “reCommerce.” Mr. Ganot estimates that $1 billion worth of old phones and other electronics devices were bought in 2012, and he expects that figure to rise to $5 billion by 2015. About 12 percent of people with old electronics devices actually try to recycle them. Mr. Ganot thinks that number will rise to 20 percent by 2015. Moreover, the number of devices that consumers buy continues to climb.

For its part, Gazelle has accepted more than 1 million gadgets and attracted more than 500,000 customers. And Gazelle has been growing very rapidly – at a 110 percent annual rate over the last three years, according to Mr. Ganot.

Mr. Ganot's background includes “more than 19 years in e-commerce and offline retail.” He spent six years at eBay and PayPal, where he helped lead its expansion to Europe, Latin America and Asia. He was also director of finance & operations at eBay UK Ltd., “helping to scale the local business to $300 million.” Moreover, Mr. Ganot began his career as a retail analyst with Goldman Sachs, earned his BS at NYU's Stern School and his MBA from Harvard University.

Gazelle has a clever business model. It buys low – taking, say, an iPhone 4 off of your hands for about $150 – and sells higher. For example, Gazelle might be able to find a buyer in an emerging market like China willing to pay $250. In the process, Gazelle customers mail their old devices to the company's service center in Dallas where the device is wiped of all the customer's personal information and sees to it that the customer gets paid what she was promised.

Gazelle has raised plenty of capital for this business. Its investors have ponied up a total of $46 million for equity stakes in the company. Mr. Ganot decided to relocate the company from Cambridge to Waltham to Allston, to its current address in Boston's Seaport district. He decided that he could afford the rent once he moved the service center to Dallas – and the Seaport district is a location that makes it easier to attract the talent Gazelle needs.

To that end, Gazelle has about 65 employees – keeping the number roughly constant over the last year.

Mr. Ganot would like to see Gazelle become a “$250 million to $300 million company in the next two to three years” that would have the potential to sell its shares to the public in an initial public offering. In order to get there, he believes that Gazelle must become “a household brand.”

Getting to that point means providing very high levels of customer service so that existing customers will tell their colleagues about the service. And Mr. Ganot believes that people trust the company to both pay them what it promises for their old electronics and to clean all the personal information off the devices before reselling them.

Mr. Ganot tracks so-called Net Promoter Scores – a measure of how likely a customer is to recommend Gazelle to others. By that measure, Mr. Ganot is proud that Gazelle's score has risen from the 70s to “between 80 and 85.”

But Mr. Ganot is not just relying on good word of mouth. It also spends money on TV and radio advertising.

So if Gazelle achieves its ambitious goals, it will end up doing well for its investors by doing good for its customers.